Question

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?
A. 0.15
B. 3.0
C. 0.10
D. 0.05

Answer 1

Answer:

Option (B) is correct.

Explanation:

Given that,

Percentage increase in price = 5%

Percentage decrease in quantity demanded = 15%

Therefore,

$Elasticity\ of\ demand=\frac{percentage\ change\ in\ quantity\ demanded}{percentage\ change\ in\ price}$

$Elasticity\ of\ demand=\frac{15}{5}$

                                           = 3.0

Hence, elasticity of demand facing Billy Bob's Barber Shop is 3.0